An Application of the Hedonic Approach to Clothing Items in the Consumer Price Index (CPI) - ARCHIVED

Description: A research program was recently initiated by Prices Division to explore the feasibility of using the hedonic approach for making quality adjustments in the Consumer Price Index (CPI) for clothing items. The current paper is the first of a series, which attempts to derive hedonic quality adjustments for Men's Dress Shirts. A database for quality characteristics is first constructed, from which two experimental hedonic models are estimated. One of these models is then used to produce hedonic quality adjustments for all shirt substitutions that have occurred subsequent to May 1995 up to June 1996. These values are then compared with the actual quality adjustments used in the official CPI. Although results are preliminary, three important conclusions can be made. First, quality adjustments derived using the hedonic versus the traditional approach are very different, at least at the level of individual substitutions. Which of the two approaches is more accurate, however, is not evident at this premature stage. Second, the integrity of the data on quality characteristics will have to improve greatly if the hedonic approach is ever to be considered as a viable alternative. Finally, improving the source data on quality characteristics would be of value whether or not the hedonic approach is adopted for making quality adjustments. One of the ways this could be done would be to adopt the checklist approach, which is the current procedure in the United States and in Sweden.

Issue Number: 1997009

Frequency: Occasional